Profit drop prompts stock sell-off

Sears’ third-quarter profit dropped 99 percent.

CHICAGO (AP) — Wall Street is starting to conclude that when it comes to running a department-store company, Eddie Lampert is a terrific hedge-fund manager.

Nearly three years after pairing ailing Sears and Kmart under his control, the investment whiz encountered his biggest trouble yet in the third quarter in trying to turn around parent Sears Holdings Corp., which he chairs.

The company earned just $2 million in a dismal performance that heightened questions about Lampert’s strategy and Sears’ future as a retailer, prompting a double-digit sell-off in its stock Thursday. Sales at both chains’ stores worsened, profit margins eroded badly and Lampert no longer was able to rely on cost-cutting to shine up the bottom line.

“Unfortunately, visits to the stores show very little evidence that Mr. Lampert has figured out the magic sauce that makes good retailers profitable, and we doubt that we will see that in the near and medium term,” Credit Suisse analyst Gary Balter said in a research note about Sears titled “Death Spiral? “It should be clear to investors that if Sears continues to try to make it as a retailer, it will likely not happen.”

Responding en masse to the 99 percent profit decline, investors pummeled Sears’ stock amid a growing exodus of those who had believed Lampert would figure out a way to turn the company around.

Shares tumbled $14.16, or 12.2 percent, to $102.18 in afternoon trading after dipping as low as $98.25 — barely half the peak of $195.18 in April.

The company signaled little hope for improvement in the near future, either, in a challenging retail environment that adds to the pressure on Lampert to either get help for the retail operation or do something else.

“He wanted to be the next Warren Buffett, but Warren Buffett never stepped in and ran a company,” said retail consultant Howard Davidowitz. “Buffett always bet on great managers. Eddie Lampert bet on himself to run a retail company where he had no background.”

Sears no longer holds conference calls under Lampert, and the chairman, who heads ESL Investments Inc., does not comment routinely on quarterly earnings.

The Hoffman Estates, Ill.-based company, which earlier this week said it may buy out the rest of retro-themed retailer Restoration Hardware Inc., narrowly avoided its first loss with net income of a penny a share. That was down from a profit of $196 million, or $1.27 per share, a year ago and far off the consensus estimate of 50 cents per share from analysts surveyed by Thomson Financial.

Sales for the quarter ended Nov. 3 slipped 3 percent to $11.5 billion from $11.9 billion.